The nationalised lender reported a pre-tax loss of £68.5m in the six months to 30 June 2011, significantly improving upon its £142.6m loss for the same period last year. Total income reached £40.6m, compared to £38.5m in H1 2010.
Ron Sandler, executive chairman of Northern Rock, said: “Northern Rock has made good progress in the first half of 2011. The company continued to be loss-making, as expected, but losses are significantly reduced and we are generating momentum.
“The company expects to begin trading profitably during the second half of 2012.”
However, he noted that the trading environment remains challenging for a small, predominantly retail funded bank like Northern Rock.
Low interest rates, subdued mortgage demand, competition for volume and pressure on margins in both mortgages and savings were highlighted as key challenges.
Northern Rock’s gross mortgage lending amounted to £1.5bn in the first half of the year, down from £2bn in H1 2010, while net lending was £0.3bn compared to £0.9bn a year previously.
Its mortgage balance for the first six months to June 2011 was £12,5bn, up from £12.2bn at the end of last year.
Northern Rock said it was managing its lending for value over volume, resulting in reduced completions in H1 2011.
Mortgages more than three months in arrears represented 0.26% of Northern Rock’s book, while the average LTV of new lending was 69% compared to 60% in H1 2010. The average LTV of its mortgage book was 61%, up from 59% for the six months to December 2010.
It said that it would continue to expand its product range “cautiously” with enhancements planned for the coming months, following new additions including 90% LTV.
Meanwhile, the bank said returning Northern Rock to the private sector remained a “key objective” following its nationalisation three years ago after a near collapse.
Sandler said: “We are working closely with UKFI and our advisers to explore the options for a sale of Northern Rock, at the right time and in the best interests of taxpayers.
“We are pleased with the level of interest we have received and will continue to explore the sale option over the coming months. In the meantime, it is business as usual.”